(Bloomberg) – Carnival Corp. sold $ 1.5 billion in new junk bonds to refinance debt and postpone maturities, just over a week after it increased the size of a leveraged loan deal that helped the company lower its borrowing costs reduce.
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The 7.5 year unsecured notes are expected to be valued later in the day with discussions around a 6% yield, according to knowledgeable people who asked not to be identified in order to discuss a private transaction. The order books will close in New York at 2:45 p.m.
The proceeds will be used to make scheduled debt repayments in 2022 and for general corporate purposes, the people added.
The cruise operator is focused on clearing the runway of short-term maturities while putting all ships back in the water, said Bloomberg intelligence analyst Jody Lurie. Management is targeting higher cash usage in the fourth quarter with a return to positive free cash flow by the middle of next year.
“Carnival removes any stumbling block from normalcy,” said Lurie.
While the Miami-based company said it expects to get its entire fleet back to sea by spring 2022, it is still burning cash as voyages resume. Carnival’s long-term debt was $ 28 billion at the end of the third quarter, up from $ 9.7 billion at the end of 2019.
The deal follows a $ 2.3 billion loan sale earlier this month, topped up by $ 1.5 billion, which helped the cruise ship operator replace expensive 11.5% bonds issued just before The beginning of the pandemic. The cost of financing the new loan was closer to 4%.
Carnival has already cut more than $ 250 million in interest expenses through loan refinancing this year, according to calculations by Bloomberg Intelligence. The cheap refinancing option shows both the optimism of investors for the cruise industry and the lack of opportunities in a market that is still characterized by liquidity.
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Today’s deal would make Carnival the second largest junk bond issuer this year behind T-Mobile US Inc., according to Bloomberg.
If the company is actually able to return to pre-pandemic operations and generate positive cash flow for the next year, its bonds could tighten to those of competitor Royal Caribbean Cruises Ltd., which are currently trading a little closer, Lurie said .
Read More: Carnival Rides $ 2.4 Billion Refi Wave Due 2022: Credit Reaction
Bank of America Corp. manages the sale of the new offering.
(Updates with price discussion in the second paragraph.)
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